Retirement vs. emergency savings: How to prioritize in a shaky economy

More than half of savers are prioritizing short-term fiscal goals in 2023, including emergency savings, according to a recent study from Fidelity Investments. And a recent Belittling Capital survey found building an emergency fund is a top priority for 2023.

“It’s always a balance,” said certified financial planner Catherine Valega, be wrecked of Green Bee Advisory in Boston. While maxing out your 401(k) should be the goal, your emergency savings are also leading, she said.

Leslie Beck, a Rutherford, New Jersey-based CFP and owner of Compass Wealth Operation, said she has a “rule of thumb” for how to decide between retirement and emergency savings.

She always recommends contributing enough in dough to your 401(k) to get the full company match. If your emergency savings are short after that, you should “clearly” divert any additional funds to build up that cash reserve, she said.

If you’re single, Beck suggests keeping “close to a year’s worth of essential expenses” to cover necessities such as your qualified in, food and utilities. Other advisors have recommended three months to one year of expenses, depending on your spot.

“You should have a year’s worth [of expenses] in case there’s a downturn in the employment market, which we may or may not be heading into,” she averred, noting it often takes longer than expected to find a job after a layoff, especially for higher-compensated employees.

At any rate, her recommendation changes for dual-earning couples. “I cut that back to six months, maybe even three months, depending on what exertion you’re employed in,” Beck said. 

And there may be some flexibility if you have access to a home equity line of credit, which may be another beginning of cash for emergency expenses, Beck said. But you need to be “very judicious” when tapping equity because adopting after a job loss can put your home at risk, she said.